Benefits and Roadblocks of Corporate Partnering for Startups

Opinion

(Page 3 of 3)

finding one domestically, but that extra effort could unearth some additional rewards. Specifically having a powerful corporate ally in another country can help a startup quickly gain an international presence at a much lower cost.

Depending on the nature of the relationships, it’s entirely possible for a promising startup to sign several strategic partnerships. This is, in fact, a good step toward fast-track expansion, because tales of organic startup growth although they make for a good story, it’s a rare feat for a startup to become a large company without a partnership.

Symplified has several such partnerships with major corporations, including Amazon Web Services, which have helped it expand much faster than it would have been able to otherwise. One of the keys to successfully forming these relationships has been careful targeting of potential partners.

Timing is Everything

As important as it is to pick the right partners, it’s just as crucial to pick them at the right time. That’s doubly true of partners who are interested in establishing an equity relationship with the startup. Doug Donzelli, CEO of Allegis Capital portfolio company Apprion, emphasizes that while the lure of additional capital is always strong, it’s important not to sign an equity deal too early.

Instead, startups should wait until they have a solid product—and have gained some market acceptance. This not only strengthens their bargaining position in the terms of the deal, but it also helps them better focus on which partners will be best suited to help them grow.

Apprion, which delivers wireless application networks and services for the process manufacturing industry, has equity relationships with both Chevron (a deal that was struck at the end of 2007) and Motorola Solutions (which came on board in the first half of 2008). Both companies fit well with Apprion’s focus—giving Apprion access to a leading customer in the market as well as one of the major vendors.

The Ultimate Focus Group

The power of names like Chevron and Motorola opens plenty of doors, but the benefits of the partnerships run much deeper. Both companies have shared a tremendous amount of marketing experience with Apprion, which has also benefited from Motorola Solutions’ technical expertise. And Chevron comments on new and existing products and what needs to change.

Utilized correctly, multinational corporation partners not only open doors for startups into wider communities, they also double as the most valuable focus group an entrepreneur could ever hope for—offering critical insight.

And just as a big business partner can open doors, it can also help close deals. After all, there is no better reference for potential customers than a company boasting a high-ranking slot in the Fortune 500.

The Non-Strategic Route

Not every company is interested in being an active partner with a startup. Some prefer a more passive role. And while active partners are preferable for startups looking to leverage the strengths of those companies, they’re not necessarily essential.

Allegis portfolio company IMVU, for example, has long had a retail relationship with Best Buy, and even obtained an investment from its green field fund, but it’s never discussed a true strategic partnership with the retailer, which mainly offers the startup insight on trends in technology and retailing. Despite the lack of the formal partnership, IMVU is benefiting greatly from the relationship.

No Free Lunch

Strategic partnerships aren’t a panacea or a free lunch. They are, in fact, a lot of work. Building momentum and ensuring follow-through from both parties takes dedicated resources.

The partnerships, by their very nature, aren’t even symmetrical. Startups are focused on a smaller product set and don’t have resources that compare to those of their partner. But the returns are similarly uneven—and largely work in the startup’s favor.

Successfully managing and tending to the partnership is an ongoing task. Startups that can handle the challenges, however, will see their growth accelerate while their capital requirements shrink. And the barriers to entry that have kept so many early-stage companies out of the global marketplace can quickly collapse, giving a startup its best chance to not only succeed, but prosper.

Single PageCurrently on Page: 1 2 3 previous page

Bob Ackerman Jr. Ackerman is the founder and a managing director of Allegis Capital, an early-stage Silicon Valley venture capital firm that invests heavily in cybersecurity. Follow @allegiscapital

Trending on Xconomy